DEs: an internationally endangered species?

This is a guest entry from Babette Moate who lives in Tasmania Australia. Originally a home sewer, she “took up sewing in self defence as a teen. It was that or wear what my mum made”. Babette’s first career was in law, specifically policy and regulatory design particularly industry reform. After 12 years of that, she enrolled in clothing production and fashion design at the Canberra Institute of Technology after which she became the technical officer for the school where she’d studied. She describes that job as “being a cross between machine maintenance technician, student sewing problem troubleshooter and business manager” and says it was a great way to learn by watching all the mistakes fashion students made without having to spend the time making those mistakes herself. Although she is currently an entrepreneur with a children’s wear line, she considers herself a pattern maker at heart and says it is her greatest joy.

Whew, reading her bio, that’s quite a stretch, from home sewer to international trade expert. So…in consideration of her background in law, regulatory reform and the apparel industry, Babette brings an interesting perspective to the debate on outsourcing production and international competitiveness as well as a picture of trade pressures in the apparel industry beyond North America. Additionally, as she understands the frustration and difficulty of small scale production due to the shortage of local manufacturing and the lack of willingness of manufacturers to take on something outside their comfort zone, she addresses her comments in that context. Introductions dispensed with, here’s Babette!

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In a recent article on Emerging Textiles, Kathleen discussed the relativities and positioning of countries such as China and India as manufacturing locations for US DEs. This isn’t just an issue for the US. DEs everywhere need to keep one eye on the international situation.

As Designer/Entrepreneurs we are many things and may have to turn our attention to varied tasks including small business management, contracting, exporting, human resource management and trend watching. Add to this list, international policy monitor. Whether or not your design business sources materials from overseas, contracts for offshore production or exports finished goods, the changing policies of your own and international governments in relation to the textile, clothing and footwear (TCF) sector will have consequences for your business.

Australia is a good example of how the shifting pendulum of policy makers, both here and in the rest of the world has impacted businesses that consider themselves to be local producers for the local market.

In the past, Australia’s TCF sector has enjoyed some of the strongest protectionist policies imaginable. Until the mid 80s, TCF production benefit from high tariffs (greater than 60%) on imports, quotas restricting the total number of units imported and bounties. Effective assistance rates were as high as 200 per cent. This support was necessary to offset high wage costs in Australia.

A seven year round of reform commenced in 1988 removing bounties and quotas and reducing tariffs to 43 per cent. As a result, some 21,000 jobs, or 18 per cent of the TCF workforce was shed. More than 95 per cent of these jobs were in clothing manufacturing, the very sector which had previously benefited the most from very high protections.

The clothing supplied by the local industry began to be replaced by imports. Those clothing businesses that remained went through a period of mergers and began sourcing production offshore. Initially, Fiji was a major production spot due to an agreement between Fiji and the Australian Government allowing the import of finished goods from Fiji at concessional rates as part of Australia’s efforts to share some of its economic benefits with smaller nations in the region. New Zealand also began to be a source of manufacturing in the mid 90s following the signing of the Closer Economic Relations agreement.

Jump forward a decade and things have certainly not stabilised for DEs. In fact, the rate of change has increased with further rounds of tariff reductions, now below 25 per cent and aiming for 17 per cent. However, the massive structural changes through the late 80s and early 90s haven’t been repeated. Nevertheless, more than ever, DEs need to keep their finger on the pulse.

By 2000, China was the new manufacturing centre for much of Australia’s clothing, whether as outsourced Australian label production, or the hub of international labels exporting to Australia. With the job losses of the previous decade, local industry infrastructure had begun to disappear including manufacturing sites, machinery and parts supply and inputs generally. Many factories were sold and stripped. This forced the increase of offshore manufacturing, even for those who would have preferred to stay.

In 2001, China was admitted to the World Trade Organisation making it even easier to deal internationally. Given the low cost of production in China, it was possible to use offshore manufacturing at that time for as little as 300 units and was recommended for 1 000 units or more. In addition, as most of the fabrics were sourced from South East Asia or Europe, there was no additional shipping involved.

As well as decimating the local apparel manufacturing industry with abrupt structural changes, no investment had been made in areas where Australia had natural advantages such as wool production. Only 13 percent of Australia’s wool clip was being processed to the tops stage in this country in the mid 90s.

By contrast, the New Zealand Government invested heavily in its wool industry. As a result, NZ merino jersey is now recognised widely as a superior performance and leisure fabric. Despite growing lower quality wool than Australia, the NZ product is far finer than anything produced in Australia and a number of NZ designers have achieved significant global recognition for their use of this fabric. NZ’s support for both downstream textile production and high-end apparel manufacturing has given NZ a major competitive advantage.

On 1 January 2005, a global abolition of quotas on textiles and apparel came into effect. Immediately, China’s exports to the US and Europe surged. In one year, exports to US leapt from $70 million US to $1.2 billion US. The consequence of this for Australian DEs was relegation from important customer status to small player. One of Australia’s largest manufacturers, placing orders of 50,000 units, found itself well behind orders from Europe for 500,000 units. Delivery times also blew out by 10-12 weeks as small contracts were made to wait.

These impacts occurred quickly. In mid 2005, small Australian companies attending Hong Kong fashion week were dismayed at the sudden reluctance to take their small orders and the imposition of large premiums for small lots. All the benefits gained in the 1990s from moving production offshore were being eaten up with 200 per cent increases in unit costs for small runs. A basic trouser which previously cost just $2.40 AUS for make (excluding cut and trim) blew out to well over $7 AUS per unit.

Given the change in lead times and cost, a number of DEs attempted to come back onshore, only to discover that the remaining local industry was not well placed to receive them. While some additional work was welcome, the local manufacturing sector was now small and had geared itself to short run, high-end apparel. Following the bad times of the early 90s, they had become specialised, niche producers in order to survive. Accordingly, they were not equipped to take on broad category manufacturing and were unwilling to expand their investment in production space and machinery in case another sudden shift should occur. Local manufacturers also lacked staff with a sufficiently broad range of skills to take on all the new work being offered.

A number of small DEs producing certain types of undifferentiated garments in small runs, such as t-shirts, have been lost in the shakeout. Larger organisations have had the scale and relationships to retain their position in the Chinese manufacturing sector such as Pacific Brands (Australia’s answer to Hanes), but even as one of Australia’s largest apparel businesses, it took the precaution of stocking up prior to the lifting of quotas in case factories refused to take their orders. It is also looking to continue acquisitions of smaller labels to improve scale and efficiencies.

The next sudden shift was the signing of the Voluntary Restraint Agreements between China and Europe and China and the US in September 2005. While not involved in either agreement, Australia’s market suffered yet again. Faced with sudden stock surpluses, Chinese manufacturers needed to offload finished product in a market with an appropriate body size. Dumping of cheap goods saw Australian wholesalers being offered deals such as 350,000 t-shirts at US 50 cents each.

At the beginning of 2006, a free trade agreement commenced between Australia and Thailand. While some Thai infrastructure will need to improve, such as surface transport to ports, this offers Australia an opportunity to claw back some position by dealing in a smaller market.

Australia has also entered a new Closer Economic Relations agreement with New Zealand. NZ now has lower tariffs on inputs and lower manufacturing costs and better exchange rate differentials and so is likely to become the new manufacturing hub for Australia as Fiji loses its position with rising wage costs and a low skilled workforce.

In July 2006, the Chinese Government dropped its export rebate by 3 percentage points, down to 10 per cent in an attempt to curb inflation. This means an increase in the price of finished goods of up to 5 per cent.

The issues now on the radar for Australian DEs are the prospect of a change in the value of the Yuan given talk of floating the Chinese currency. The other potential issue is talk of a new Free Trade Agreement with China. Australian Government officials have publicly stated that it may be necessary to make further concessions to Chinese textile producers in order to win gain for Australian primary producers.

This represents further uncertainty for the local TCF sector meaning that local industry is unlikely to take steps to grow their business. DEs are likely to find themselves continuing to struggle to find local manufacturing and access to well-priced, quality Australian made fabrics remains a pipe dream.

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Kathleen started production patternmaking in 1981. Starting in 1993, she began providing consulting and engineering services to manufacturers, small companies, and startups with an emphasis on developing owner-operator domestic cut-and-sew operations. In 2015 she opened a 5,000 sqft. fully equipped sewing factory: The Sewing Factory School. Kathleen is the author of The Entrepreneur’s Guide to Sewn Product Manufacturing, the most highly rated book of any topic in the garment industry. She's been mentioned numerous times in the New York Times, Wall Street Journal, Forbes, National Public Radio, Boston Globe, LA Times, Vogue, French Vogue and has at least 15 Project Runway alums at last count. Kathleen writes nearly all of the articles on Fashion-Incubator.com and hosts its forum, the largest private online community for apparel manufacturers on the web.

8 comments

Very thoughtful report. Very astute observation on how decent sized orders can get “bumped” in favour of the larger ones coming in from other parts of the world. And the unrest continues to this day. Currently, a reputed labour shortage is occuring in Shanghai, and factories are using this as a reason for raising prices, not only to Aussies companies, but many others as well.

Regarding Jan 2005, did you mean 700 million to 1.2 billion ?
I know when the FTC reinstated quotas on some categories in June 2005, certain garment types were up well over 800% and they decided to put the brakes on. I thought Canada would also reinstate the quotas, but like Australia, we are awash in closeout stuff and no end is in sight. With no quota to protect anyone, it is not just Chinese factories going wild trying to offload goods, much of it manufactured at low prices, brought into the country, flipped quickly and profits made locally.

Just about every CDN town or city have a new type of retailer, the discount/clearance center. Often only around for a few months, it just helps spread the low cost merchandise a bit faster.

Thank you so much for an Australian perspective. I remember when the reduction in quotas hit, a local trouser making company closed its doors. They had been going for so long that the office looked like it came from a novel by Dickens. 50 sewers were immediately out of work. The follow-on effect was that a major haberdashery supplier had to substantially reduce their business now their major client was gone. It caused shock waves all around our tiny fashion industry. Long term though, it’s as Babette said, our industry has gone very high end. I was shocked at the prices I had to pay for CMT when I re-entered the game after 10 or so years, but there’s not really much choice, and the boutiques didn’t keel over at the wholesale prices, so I just kept a straight face and continued selling: ).

An interesting knock on effect of cheap clothes is the charity situation. Charity stores are full to the brim with hardly worn clothes, and are getting picky about what they take because of the cost of disposing of the stuff that doesn’t come up to the new high standard. Gone are the days of fossicking through dingy corners, nowadays they look like chain stores.

Thank you so much for an Australian perspective. I remember when the reduction in quotas hit, a local trouser making company closed its doors. They had been going for so long that the office looked like it came from a novel by Dickens. 50 sewers were immediately out of work. The follow-on effect was that a major haberdashery supplier had to substantially reduce their business now their major client was gone. It caused shock waves all around our tiny fashion industry. Long term though, it’s as Babette said, our industry has gone very high end. I was shocked at the prices I had to pay for CMT when I re-entered the game after 10 or so years, but there’s not really much choice, and the boutiques didn’t keel over at the wholesale prices, so I just kept a straight face and continued selling: ).

An interesting knock on effect of cheap clothes is the charity situation. Charity stores are full to the brim with hardly worn clothes, and are getting picky about what they take because of the cost of disposing of the stuff that doesn’t come up to the new high standard. Gone are the days of fossicking through dingy corners, nowadays they look like chain stores.

Thank you for the Australian perspective. I have noticed a recent change with Chinese companies too. They are less willing to work with small, US based companies. They only want large volume, immediate orders or not at all.

There was an article in the Age recently suggesting that Australian DEs, once the free trade agreement is signed, may have new export opportunities – to China. Apparently, the growing Chinese middle class have a problem – they can’t afford high-end clothing (Chanel, etc), and the don’t want to buy stuff ‘made in China’ – but there’s nothing available in between! Quality Australian DEs who manufacture in Australia may be able to fill that gap.

Thank you Barbette, that is the best history/analysis of the Australian TCF industry that I have ever read, and given the number of DE in this country a very important summary.
Having survived (just) in Aus TCF since the early 80’s I can relate to every step of this so called industry restructure. Unfortunately during the transition from the manufacturing to the merchandise model, also known as the Quicker, Faster, Cheaper (QFC) model where the preproduction/technical design process now operates in a virtual domain, information management, QA procedures, career, skills development and systems have not kept pace with this new mode. The role of technical management is greatly under valued in this industry. Many skilled patternmakers are simply expeditors. Skills in Illustrator and Excel are more important than patternmaking for fashion graduates to-day. Who needs skills in garment fit when QC checks are two-dimensional only? Let’s not let bodies get in the way.

I concure whole heartedly with Kate, a very important summary Barbette.
Kate has raised a critical issue for the Australian industry – the under valuing of pre-production management. All industry reviews in the last 10 years recommend a ‘design and merchandise’ model for Aus clothing businesses. Not surprisingly the word pre-production fails to appear in reports and hence the important role it plays in converting design into product is completely over looked. Of course we all know that from a sketch, product just magically appears from O/S manufacture don’t we!!
While the easier, faster, cheaper mentality seems to be the driver in current apparel activity I would like to pose another model – complex, thorough, investment (CTI). In other words complex skills / systems underpinning thorough checking of accuracy / detail and long term investment in technology / people to ensure continuity will actually produce the easier, faster, cheaper desired model. But hey who gets its it?? And who has the courage to stand up to a tirade of abuse when a production sample should have gone out 3 days ago!!! Mind you if the cost of stuff ups, excess inventory, poor fitting garments and bad quality was added to the pre-production wages bill business owners might see the cost benefits to the CTI model. But sadly all too often management gets stuck transferring costs from one department to another without any real gains in cost and operating efficiencies.
Having just returned from a world trip via Germany to do an advanced pattern making class in Grafis software I can testify that they get it.
Very impressive. Alas there is hope!

what is the use of indian fashion designers when there is no market creating potential as the core users are driven by textile and apparel people and not every one in india is a star and not born to a star. A star is paid handsomely to project the brand. He is no way using the brand 24 hours in his bed-room,toilet..etc..What needs to be done to Indian mentally is to pump some common-sense and not petroleum products to people who write rubbish articles on fashion trends and fashion forecasting inspite of themselves being not a part of world fashion trend-setters. Can any-one name world class fashion trendsetters from india. What’s not in vogue abroad is vogue in india???

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Often described as the garment industry “blue book,” Kathleen's book is the most highly rated guide to the business. The Entrepreneur's Guide to Sewn Product Manufacturing is guaranteed to get you off to a solid start or your money back. Many service providers will require you to read it before they’ll work with you.